Exclusive - Olympus chief prepares to sue execs over scandal

By IBT Staff Reporter On 11/16/11 AT 11:24 AM

Japan's disgraced Olympus Corp is preparing to take legal action, including possible criminal suits, against any executives found responsible for an accounting scandal engulfing the firm, according to an internal staff email.

The memo, obtained by Reuters on Wednesday, was sent to Olympus employees on Tuesday by new President Shuichi Takayama, who also vowed to restore public trust in the once-proud maker of cameras and endoscopes.

Japan's securities watchdog, police and prosecutors in Japan, the United States and Britain are probing the 92-year-old company, which admitted last week it hid investment losses for two decades using funds linked to takeover deals.

At a meeting with more than three dozen creditors on Wednesday, Olympus apologised and outlined its financial position, adding it aimed to keep its stock market listing and meet a December 14 deadline to announce its earnings.

Its two top lenders also gave assurances they would support the firm, sources with knowledge of the matter said.

A third-party panel appointed by Olympus to investigate the scandal is expected to report its findings early next month after meeting with ousted chief executive Michael Woodford, the Briton who fled Japan on October 14 after alleging around $1.3 billion (823.6 million pounds) in shareholder value has been destroyed.

We will wait for the third-party panel to report and we are preparing to take firm legal action, including criminal complaints, against any manager it finds responsible, Takayama wrote in the November 15 email.

BOARD BATTLE

The email did not name executives. But Takayama last week blamed predecessor Tsuyoshi Kikukawa, who quit as president and chairman on October 26, former vice-president Hisashi Mori, who was fired last week, and internal auditor Hideo Yamada for the cover-up. Mori and Kikukawa confessed to their roles on November 7.

Woodford reiterated in London that the whole board was complicit, including Takayama, and should resign. He has said the board had ignored his calls for answers, a PricewaterhouseCoopers report highlighting accounting irregularities that he had commissioned -- and unanimously voted for his removal last month.

The majority of them were there when the major transactions were made, he said. They were all there when they received my six letters and the PwC report and failed to act ... They just don't ask the most basic questions, he said.

Woodford said he was meeting a member of Olympus's third-party panel on Monday in London and the U.S. Federal Bureau of Investigation (FBI), the Department of Justice (DoJ) and the Securities and Exchange Commission on November 29.

Investor hopes that the company will avoid the ultimate market sanction of being delisted from the Tokyo Stock Exchange sent the stock, which has lost 80 percent of its value over the last month, 15 percent higher in heavy trade on Wednesday.

As long as market participants think Olympus will not be delisted, the stock will continue to rise, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

Regulators are also gearing up. Japan's Securities Exchange and Surveillance Commission (SESC) is considering recommending criminal charges and Britain's Serious Fraud Office (SFO) is launching a formal investigation into the scandal, sources with knowledge of the matter told Reuters.

One source said the SESC might also fine Olympus for false financial reports, a move that could allow the company to stay listed, although that outcome is not assured.

The sources declined to be named because they were not authorised to discuss these matters publicly.

Meanwhile, the Bank of Japan is also gathering information from related financial firms about Olympus' past transactions, central bank Governor Masaaki Shirakawa said. It is regrettable that doubts have arisen about the transparency and fairness of corporate management, he said.

TRIO AT HEART OF SCANDAL

Olympus executives are likely to face questioning on a voluntary basis by Tokyo prosecutors as early as this week, the Nikkei business daily reported on Wednesday.

The trio also decided to increase payments to the advisory firm -- payments that were used to conceal huge losses on securities investments by Olympus, the documents show.

Takayama, who took over last month, called on employees in the internal email to unite to overcome the corporate crisis and not be deluded by an online petition led by an ex-Olympus director to reinstate Woodford as CEO.

I am confident that the actions of all of you, who are working for the sake of Olympus with a sense of mission, will revive trust in Olympus so that the brand will shine, Takayama wrote. Now is not the time to be wracked with fear and doubt.

After weeks of denials, Olympus admitted last week that funds related to its $2.2 billion purchase of UK medical firm Gyrus, which involved a record $687 million advisory fee, and $773 million paid for three tiny domestic firms, were used to hide losses on securities investments dating to the 1990's.

Analysts say the future of Olympus' prized medical equipment business may rest in an eventual buyout by a rival or a private equity fund. Fujifilm and Hoya, the second- and third-largest players in the endoscope business, are seen as potential bidders.

But Fujifilm President Shigetaka Komori told reporters on Wednesday it was premature to comment given the uncertainties.

In a separate memo, Olympus management told staff on Wednesday it believed it had the backing of creditors and still had healthy cash flow and sufficient funds to keep investing in the business.

The memo was distributed to staff after a meeting with about 100 bankers, where Sumitomo Mitsui Banking Corp and Bank of Tokyo-Mitsubishi UFJ (BTMU) said they would continue to support the firm, multiple sources said.

Sumitomo Mitsui Banking Corp is the core banking unit of Sumitomo Mitsui Financial Group, and BTMU is the main unit of Mitsubishi UFJ Financial Group.

Olympus' interest-bearing debts stood at about 650 billion yen (5.3 billion pounds) on a consolidated basis as of end-March. SMFG and BTMU have total loans of over 400 billion yen to the firm, which also borrowed about 100 billion yen in syndicated loans, according to banking sources.